FHA gift charities such as Nehemiah Corp. of America and AmeriDream, Inc. have funded down payment assistance programs to allow home buyers to obtain 100% funding for FHA loans that normally require  three percent in cash. The home seller makes a contribution to the charity and for a fee of a few hundred dollars, the buyer receives a gift to cover the down payment.

Now, the FHA Commissioner Brian D. Montgomery plans to end those programs later this year. The reason cited is the higher default rates and excessive foreclosures when buyers do not have funds for a down payment.  FHA says that the losses are so severe that they threaten the solvency of the the agency's insurance funds. The losses are compounded when homes prices are raised to cover the contributions and the excessive prices lead to higher losses at the time of foreclosure.

There will be heavy political pressure on both sides of this issue and new legislation or court action may address the issues. This is not the first time that FHA has made this effort to eliminate the gift programs in question.